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10th petition vs anti-terrorism law filed

By Vann Marlo M. Villegas, Reporter

MORE THAN 40 activists and human rights groups jointly filed the 10th petition before the Supreme Court against the law that expands the definition of the crime of terrorism, which officially took effect July 18.

The 44 petitioners seeking the court to declare unconstitutional the Anti-Terrorism Law is led by Bagong Alyansang Makabayan (BAYAN), Movement Against Tyranny, Karapatan and veteran activists, according to a statement in a social media post of BAYAN Secretary General Renato M. Reyes, Jr.

“With the terror law already deemed effective, the petitioners are asking the High Court to stop the convening of the Anti-Terror Council and the exercise of its functions, to stop the drafting the of the IRR and the convening of the Joint Oversight Committee under Section 50 of the assailed law,” they said in a statement on Sunday.

“The petitioners are asking the SC to strike down the entire law for being unconstitutional.”

Artists and members of the academe and religious groups joined the petition, which was filed electronically.

A hard copy of the petition will be filed on July 23.

The National Union of Peoples’ Lawyers serves as their legal counsel.

Petitioners argued that the law violates the due process clause because of its “extremely vague” definition of terrorism.

They also said it violated the free speech clause, “constitutional right to due process, right to property, and freedom of association, and for usurping judicial prerogatives,” citing the provision on designation of terrorist individuals, groups of persons, organizations and associations.

They also raised concern over the constitutional protection against warrantless arrest and detention without charges as well as right to bail and to travel.

The anti-terros law considers attacks that cause death or serious injury, extensive damage to property and manufacture, possession, acquisition, transport and supply of weapons or explosives as terrorist acts.

It will also create the Anti-Terror Council, which will be made up of Cabinet officials who can perform acts reserved for courts, such as ordering the arrest of suspected terrorists.

The law also allows the government to keep a suspect in jail without an arrest warrant for 14 days from three days previously.

Justice Secretary Menardo I. Guevarra on Friday said the government will be drafting the implementing rules and regulation for the law.

The Supreme Court has consolidated the first eight petitions against the law on June 14 and asked the government to answer the lawsuits.

The Office of the Solicitor General said it has filed its comment, asserting that the Anti-Terrorism Act embodies the state’s policy “‘to protect life, liberty, and property from terrorism, to condemn terrorism as inimical and dangerous to national security of the country and to the welfare of the people, and to make terrorism a crime against the Filipino people, against humanity, and against the Law of Nations.’”

“The Anti-Terrorism Act is needed to fight the continuous and aggressive security threats brought about by terrorism,” the state’s counsel said in a statement on Friday.

Meanwhile, the Catholic Bishops’ Conference of the Philippines (CBCP) expressed alarm over the new law, which it said interferes with people’s rights and leads to the fall of democracy.

CBCP Acting President Pablo Virgilio S. David, in a Pastoral Letter on Sunday, questioned the passage of the bill at a time when the government should focus on the crisis spawned by the coronavirus disease.

Mr. David said they support the petitions filed against the law.

“Hindi namin maiwasan makibahagi sa pag-aalala na ipinahayag ng mga abogado at ordinaryong mamamayan na nagpadala ng petisyon sa Korte Suprema laban sa batas na hindi sinasang-ayunan ng marami (We can’t avoid taking part in the concerns raised by lawyers and ordinary people who filed a petition before the Supreme Court against the law that many disagree with),” he said. — with Gillian M. Cortez

Land reform land reform

Land reform land reform. Our land reform program has become so messy, so bad for agricultural productivity and economic growth, that it needs a land reform on top of the land reform. Moreover, because land reform in the Philippines took so long — more than 35 years — it has spawned second generation problems that it will take another land reform to undo. (I will explain a bit later.)

What are the first generation problems and what has been the result? One is the fragmentation of agricultural land. With a retention limit of five hectares, i.e. nobody allowed to own agricultural land beyond five hectares, the Comprehensive Agrarian Reform Program (CARP) land distribution, and death of the original farmer beneficiaries, the average land size of agricultural lands has been shrinking over time.

In 1985, the average farm size was 2.85 hectares. By 2002, the average size had dropped to 2.01 hectares. Today, the average size must have dropped even further. In Bohol, when I visited a few years ago, I was told the average farm size was less than a hectare.

The fragmentation has had deleterious effects on productivity. My fellow columnist, Dr. Raul Fabella, cited the excellent study by Tasso Adamopoulos and Diego Restuccia published in the prestigious National Bureau of Economic Research Journal (2019) on CARP titled “Land Reform and Productivity: Quantitative Analysis with Microdata.” It showed that due to CARP, the average farm size has been reduced by 34% while agricultural productivity fell 17%. CARP had a significant negative effect on farm productivity, labor productivity, and total factor productivity.

Therefore, our agricultural sector is lagging behind services and manufacturing. It cannot even grow above the population growth rate of 1.4%. The overall result: farmers remain poor (as Fabella described them, from poor peasants, farmer beneficiaries have become “impoverished landowners”), the country becomes more vulnerable to food price shocks and even more dependent on food imports. It’s not a comforting thought during this pandemic when food security has suddenly become important.

Do-gooders say that cooperatives are the solution to the fragmentation of lands. I’ve been hearing about this since time immemorial, but the solution obviously hasn’t worked, judging from our still backward productivity. It’s not hard to see why: the transaction costs for collective action are too high and without a market mechanism to settle differences (buy me out or I buy you out), farmers spend their time in politicking to control the cooperatives.

Neither will a Big Brother-Small Brother arrangement work with an agribusiness processing firm because the agribusiness processing firm must contend with the practice of “pole vaulting,” i.e. farmers not honoring their supply contracts and selling to a different buyer when they can get a better price elsewhere. The agribusiness firm must have the option to put up its own farm to assure its supply of raw materials. However, under the present CARP law, the firm can’t buy more than five hectares of agricultural land.

The solution, short of revoking the five hectare retention limit, is to allow farmer beneficiaries to lease their lands. As Adamopoulos and Restuccia state, “A well functioning rental market for land can substantially mitigate the negative effects of imposing a ceiling on land holdings as these markets would tend to disassociate land use from land rights.”

However, here’s the rub: farmer beneficiaries aren’t allowed to lease their lands until the debt amortizations with a 30-year repayment period have been fully paid and 10 years have elapsed after award of the CLOA (Certificate of Land Ownership Award).

According to a Philippine Institute of Development Studies (PIDS) study (2003), these restrictions reduce the value of the awarded land by: a.) eroding the collateral value of land, b.) lowering the value of contracted land, c.) reducing the farmer’s incentive to invest in land improvements, d.) constraining the transferability of land from less productive to more productive farmers, and e.) limiting the choice of more efficient contractual arrangements.

What’s the solution? Let the government condone the debt, as my friend and fellow columnist Dr. Raul Fabella said last week. Debt condonation is a social justice, economic stimulus, and productivity enhancing measure all at the same time.

It’s a social justice measure because the government degraded the value of the land when it imposed restrictions and yet demands payment for the full amount.

It’s an economic stimulus measure because if freed from debt, the farmers will spend more to increase the productivity of their farms.

It’s a productivity enhancing measure because it will enable land to be consolidated via lease into more productive farms.

Leasing will give farmers a safety net in the form of an annual rental income while allowing more productive farmers to use the land. This is what’s happening in China and Taiwan.

Leasing isn’t the first best solution. Lessees tend to over fertilize and downgrade the quality of the land since they don’t own it. However, it’s a good enough solution that satisfies both social justice and economic efficiency goals.

Debt condonation won’t lead to “moral hazard” because there won’t be another land reform program wherein landless peasants will similarly incur a debt from the government. It’s also the government that did injustice to the farmers by saddling them with debt and restrictions. In fact, debt condonation is the moral thing to do. Moreover, there’s an overarching public good that will be served by condonation.

Debt condonation won’t hurt the finances of government inasmuch as 75% of farmers actually aren’t paying their amortizations, although this is probably the government’s fault. Farmers are unable to increase the productivity of their land with the restrictions imposed on them so they are unable to pay.

Aside from the fragmentation of lands and the restrictions on CLOAs, there’s another huge problem bedeviling CARP: half of all CLOAs, mainly those that came from public lands, have a collective title. Without an instrument of individual ownership, farmers are saddled with “dead capital.” They can’t formally sell, lease, or mortgage their farmlands.

The government issued these CLOAs because the Department of Agrarian Reform (DAR) wanted to claim huge accomplishments without going through the tedious task of land survey and issuance of individual titles.

Fortunately, after 33 years, the government has recognized this problem. This year, the government borrowed $370 million from the World Bank for a project to parcelize the collective CLOAs under CARP. The project is called Support to Parcelization of Lands for Individual Titles (SPLIT).It’s expected to benefit 750,000 farmers.

However, when the program will be implemented and completed is still a big question mark.

The problems bedeviling CARP don’t stop at collective CLOAs and restrictions. Because CARP is the longest running land reform program in the world, from 1987 to 2014, or more than 30 years, a second generation problem has arisen. This problem is due to the fact that, as former Agrarian Reform Secretary Gil de los Reyes describes it, the authors of the CARP Law assumed that farmers don’t die. The CARP Law doesn’t have any provisions for succession. Therefore, when farmer beneficiaries die (and most probably have died since the CARP is over 30 years old), the law on succession under the Civil Code is followed. The heirs would have equal rights to the land. In most families, perhaps only one heir remains to till the land, if at all. (or none, as the heirs dispose of the land illegally in the informal market). The other family members would probably have moved to another site, or work overseas.

Therefore, imagine the problem for any transaction involving the land: all the heirs have to sign on the document. If the heirs are abroad, they would have to go to the nearest consulate to sign and notarize a special power of attorney. And this assumes that they can be contacted. That’s already a huge burden for heirs from middle class families. What more for poor farmers without access to the internet and good lawyers?

In a sense, these inherited farmlands have become mini-collective CLOAs, with multiple absent family members having ownership rights to the property. The original CARP was supposed to solve the problem of absentee landlords with a land to the tiller approach but because of time and death, absentee landowners have again become the norm. Therefore, we may need to land reform land reform.

Frankly, I don’t know the solution to this problem. In some countries, heirs lose their ownership or possessory rights if they don’t till the land. However, I understand this would require an amendment to the Civil Code, which is an almost impossible undertaking.

In the meantime, condone the debt, stimulate the economy, and free the farmer.

 

Calixto V. Chikiamco is a board director of the Institute for Development and Econometric Analysis.

idea.introspectiv@gmail.com

www.idea.org.ph

Regional updates (07/20/20)

DPWH to fast-track construction of two COVID-19 facilities in Quezon City

CONSTRUCTION of additional facilities at two government-run hospitals in Quezon City will be fast-tracked with intervention from the Department of Public Works and Highways (DPWH), according to Secretary Mark A. Villar. In a statement Sunday, Mr. Villar said the Department of Health and national task force handling the coronavirus disease 2019 (COVID-19) response requested assistance for the completion of delayed building projects at the East Avenue Medical Center and Quirino Memorial Medical Center. On July 17, DPWH Undersecretary Emil K. Sadain met with E.M. Cuerpo Construction, contractor of the COVID-19 health facilities at East Avenue Medical Center, and hospital officials to address construction delays. “The DPWH Task Force will make further review on the plans and programs of the hospital building so we can come up with a catch up scheme that will accelerate the completion of the much-needed medical facilities,” Mr. Sadain said, noting that only the first two levels of the building are currently operational. He said the contractor has committed to finish work on the 3rd-5th floors by August 15, and the 6th floor by the end of August. Once completed, the new building will house 220 hospital beds for COVID-19 patients. For Quirino Memorial Medical Center, Hospital Chief Evelyn Victoria E. Reside told DPWH that the delay in the construction of their health facility was due to lack of funds. Ms. Reside said only one floor of the hospital’s COVID-19 building project was completed by the contractor. In response, Mr. Sadain asked the engineering department of the hospital to present a report of the remaining works, including a budget estimate, to finish the 2nd-4th floors and two parking levels at the top floor, for possible funding from national task force. When completed, the facility can accommodate an additional 150 hospital beds for COVID-19 patients.—Revin Mikhael D. Ochave

Jeepneys allowed to resume operations in Cebu province feeder roads by July 20

TRADITIONAL JEEPNEYS have been given the greenlight to resume operations within Cebu province starting Monday, July 20, but only along feeder roads and not the national highway. Cebu Governor Gwedolyn F. Garcia, in a statement on Saturday, said the Land Transportation Franchising and Regulatory Board (LTFRB) gave the permit following a meeting Friday. LTFRB Central Visayas Director Eduardo Montealto Jr. said jeepneys may ply feeder roads from the villages or any remote area going to the bus stops. The transport modernization program was also discussed, with Mr. Montealto noting that jeepney drivers and operators have committed to make the shift despite earlier opposition. Mr. Garcia, Mr. Montealto, other local officials, representatives of several transport groups, and government banks Land Bank of the Philippines and the Development Bank of the Philippines have discussed the available loan facilities for the program.

The Oligarchy

President Rodrigo Duterte said: “Kaya ko mamatay, mahulog sa eroplano. [I can now die, fall from an airplane.] I am very happy. Alam mo bakit? [You know why?] Without declaring martial law, I dismantled the oligarchy that controlled the economy of the Filipino people.”

But wait, Mr. President, before you let yourself fall from a plane, listen to this. People who have religious faith as well as non-believers with a good soul would not like that to happen. For the believers, such an act is sinful. For non-believers, the act is reprehensible.

Besides, your wish of dying after claiming to have dismantled the oligarchy might not be realized by falling from a plane. Falling from a plane will not result in certain death, especially for an outlier like you. That you have performed exceptionally well in survey after survey, despite the controversies that have hounded you, shows you are an outlier.

Have you heard of Vesna Vulović? She, too, was an outlier. She was a flight attendant and the only survivor of a terrorist bomb that blasted a plane in midair. She fell to the ground without a parachute from an altitude of 10,160 meters. (The elevation of Mount Everest, the world’s highest peak, is 8,848 meters.) According to Wikipedia, Ms. Vulović “suffered a fractured skull, three broken vertebrae, broken legs, broken ribs, and a fractured pelvis.” Even a heavy dose of fentanyl cannot alleviate such pain. Again, believers and non-believers with good hearts would not like you to endure such suffering.

But the more important reason why your wish is not possible — and your happiness denied — is that it is predicated on a wrong assumption. You assume that you have dismantled the oligarchy by denying a broadcasting franchise to ABS-CBN, owned by the powerful Lopez family.

Let us first define what is meant by “oligarchy.” Here, I turn to the definition of political scientist Jeffrey A. Winters. In his book, Oligarchy (Cambridge University Press, 2011), he defined “oligarchy” as those few “who command and control massive concentrations of material resources that can be deployed to defend or enhance their wealth and exclusive social position.”

So being a billionaire is insufficient to make an oligarch. One must likewise use “massive concentrations of material resources” for wealth defense and promotion. Hence, to be an oligarch, one must have political power, or buy political power. Taking off from Winters’s definition, John Sidel (“Achieving Reforms in Oligarchical Democracies: The Role of Leadership and Coalitions in the Philippines,” Developmental Leadership Program, 2014) says that oligarchical democracy is “a political system whose institutional structures and electoral contests are directly or indirectly dominated by such an oligarchy.”

Undeniably, the Lopez family has been part of the oligarchy. Scholars have written about this. Most notable is Alfred W. McCoy’s “Rent Seeking Families and the Philippine State: A History of the Lopez Family,” in Alfred W. McCoy.ed., An Anarchy of Families: Filipino Elites and the Philippine State (Ateneo University Press, 1993). For a story about the Lopez family and ABS-CBN, read Raul Rodrigo’s Kapitan: Geny Lopez and the making of ABS-CBN (ABS-CBN Publishing, 2006).

But the Philippine oligarchy has other sets of actors, and the Lopez family in recent years has had its political clout diminished. The economic power of the Lopezes pales in comparison with that of the Villars, the Marcoses, Lucio Tan, the Danding Cojuangco-Ramon Ang faction, and others.

In short, the oligarchy is alive. The oligarchs associated with the Duterte administration, including the nouveau oligarch that is Dennis Uy, are prospering. In the words of disgraced former President Joseph Estrada, weather-weather lang. Disenfranchising ABS-CBN is all about hubris and political arbitrariness.

In 1972, Ferdinand Marcos demolished the Lopezes, ostensibly to defeat the oligarchy. In 2020, Duterte is demolishing the Lopezes, likewise claiming that he wants to defeat the oligarchy.

Duterte is a resurrected Marcos. Duterte does not need martial law. He is terror personified.

The oligarchy is dead! Long live the oligarchy!

 

Filomeno S. Sta. Ana III coordinates the Action for Economic Reforms.

www.aer.ph

Tourism recovery to be gradual; small firms struggling to survive

THE recovery in the tourism industry will be gradual and will depend on how well governments arrest the spread of infection, though the industry is expected to report significant losses over the full year, according to the International Institute of Finance (IIF).

It said the industry in tourism-dependent emerging markets is disproportionately reliant on small and medium-sized enterprises, “which may find it more challenging than larger enterprises to survive.”

“Tourism accounts for a substantial share of employment in a number of large EMs such as Mexico, Thailand, and the Philippines and, under our baseline scenario, the economic impact may reach dramatic levels in many countries,” it said in a research note.

According to the Philippine Statistics Authority, employment in the sector was 5.71 million in 2019, equivalent to 13.5% of total jobs.

IIF’s base-case scenario for 2020 is for international tourist arrivals of 50% of 2019 totals.

“Even under more optimistic assumptions (75% recovery by the year-end), many countries would face an overall loss of 60% of arrivals, and thus tourism revenue,” it said, noting a second wave of lockdowns for tourism-centric countries could make matters worse, with recovery expected to take more than two years.

With the pandemic changing tourism behavior and highlighting the need to keep visitors safe, the Philippines may need to implement specific measures in order not to lag other countries in the region which have more successfully contained the virus, according to John Paolo R. Rivera, associate director at the Dr. Andrew L. Tan Center for Tourism at the Asian Institute of Management.

“Considering the rate at which we report cases relative to other ASEAN countries, it is giving the impression that the Philippines has a lot more work to do in ensuring prospective tourists are safe when they visit the country,” he said in a text message.

Mr. Rivera said traveler mindsets have been drastically altered by the virus, and the industry needs a comprehensive strategic plan to recover.

“Safety is now the primary consideration for tourists when they decide to travel. Are travel safety protocols in place? Are they clearly defined? Are they guaranteed to be strictly implemented?,” he said. — Luz Wendy T. Noble

Manila FAME 2020 trade show canceled in favor of digital

THE Department of Trade and Industry’s export promotion arm is cancelling the 71st Manila FAME trade show as it shifts to digital promotion activities.

The Center for International Trade Expositions and Missions (CITEM), promotes Philippine export goods and services through various events, including trade fairs. The group had canceled its events in the first half.

Manila FAME, which was scheduled for October, focuses on design and lifestyle products.

CITEM in a statement Friday said the cancellation is due to health and safety considerations following a survey of stakeholders.

CITEM will instead launch a Manila FAME digital platform in October.

“While the physical Manila FAME will not push through this year, we are exploring various opportunities and platforms online and are eager to have you onboard as we tap into Manila FAME 2020’s digital prospects,” CITEM Executive Director Paulina Suaco-Juan said.

“In a situation like this… (with governments enforcing) travel restrictions, quarantine regulations, and social distancing measures, we are turning to digital and its ability to promote Filipino artisanship (to target) tested and untapped markets around the world on a 24×7 basis.”

CITEM prior to the lockdown set a $336 million target for export orders across all its events for 2020, including targets of 18,000 trade inquiries and 9,000 unique buyers.

The center has been encouraging exporters to shift to online platforms after trade shows were canceled. — Jenina P. Ibañez

Rural banks increase health and agriculture lending

LOAN DISBURSEMENTS by rural banks to essential sectors such as health and agriculture rose during the pandemic, the industry association said.

“We have seen an uptick in credit applications and disbursements from the agricultural and health sectors,” Rural Bankers Association Association of the Philippines President Elizabeth C. Timbol said in an e-mail.

Ms. Timbol noted that agriculture loan applicants were mainly involved in hog raising, poultry, and other aspects of food production.

Applications from the health sector came from entrepreneurs selling products deemed essential to comply with health measures protocol and hospital equipment are also among those that applied for credit during the crisis, she added.

Ms. Timbol said the Philippine Guarantee Corp. (Philguarantee) as well as the Department of Industry and the Small Business Corp. “should expedite” their applications to enable rural lenders to lend to more micro-, small, and medium-sized (MSMEs) and help them recover from the crisis.

“Other government relief measures were not extended to rural banks and others have stricter requirements and slow processing in terms of applications,” she said.

“The government should prioritize the rural banks by making them conduits for all the relief measures to affected sectors in the society,” Ms. Timbol added, noting the Department of Agriculture (DA) — Agricultural Credit Policy Council has so far been supportive to extend help to the agricultural sector through rural banks.

In June, Philguarantee approved credit guarantees worth P120 billion to encourage lenders to extend credit to small businesses seeking working capital.

The DA approved funding of P1 billion in April to go to loans aiding the sector to ensure food security. The funds fall under the Expanded Survival and Recovery Assistance Program for Rice Farmers.

In terms of measures implemented by the Bangko Sentral ng Pilipinas (BSP), Ms. Timbol said the central bank’s decision to count MSME loans as part of banks’ reserve requirement compliance has been helpful to rural lenders.

She added that the staggered booking of provisions for probable losses over five years and the exclusion from the past-due ratio of loans to affected borrowers for one year have also been helpful.

Earlier this month, BSP Governor Benjamin E. Diokno said P44.2 billion in MSME loans were used as alternative compliance by 88 banks, most of which were rural lenders.

The rural and cooperative banking industry’s net profit totaled P1.402 billion in the first quarter, down 5.07% year on year. — Luz Wendy T. Noble

Asia-Pacific must set loftier electrification goals — ADB expert

THE Asia and Pacific region should set more aggressive targets for universal electricity access over the next decade, an energy sector expert from the Asian Development Bank (ADB) said.

Around 200 million people in developing countries within the region had no access to electricity in 2018, down from 351 million in 2017, based on a progress report on the United Nations’ Sustainable Development Goals.

Despite the improvement, significant challenges continue to prevent full electrification, according to the Energy Sector Group of ADB’s Sustainable Development and Climate Change department.

These include unreliable supply, limited capacity of microgrids and solar home systems, and the need for more electricity services beyond household consumption.

“While Asia and the Pacific (are) well on track to achieve 100% electricity access, the region must aim higher and seek to achieve 24/7 electricity supply with good quality and sufficient quantity to maximize economic and human development benefits,” Yongping Zhai, the head of ADB’s Energy Sector Group, said in a recent blog post.

The key, he said, is to pursue an integrated approach to electrification, which includes credit support from banks and the use of smart systems that allow households to inject their surplus electricity into the grid.

“From a technological point of view, individual solar home systems can be connected to each other to share extra solar generation and battery capacities to form a microgrid; while a microgrid can be connected to the national grid,” he added.

“With smart energy management systems using digital technologies, microgrids can be operated as a standalone system to maximize solar and other renewable energy generation at minimum cost, or be switched to the national grid when there is a deficit of supply within the microgrid,” he added.

He backed the formation of specialized rural energy service companies via public-private partnership “to coordinate, operate, and maintain the integrated electricity supply system.”

“Asia and the Pacific should take the lead to show the world how innovation will take us to the next level of electrification,” Mr. Zhai said. — Adam J. Ang

COVID-19 and its accounting implications

(Second of two parts)

In last week’s article, we discussed the challenges of assessing an entity’s status as a going concern, accounting for financial instruments, impairment of non-financial assets and revenue recognition. This week’s article will provide brief discussions on inventory costing and valuation, addressing onerous contracts and assessing whether events surrounding the pandemic and the resulting developments are adjusting or non-adjusting events.

INVENTORY COSTING AND VALUATION
Inventories are required to be accounted for at the lower of their cost or net realizable value (NRV). The pandemic and resulting government measures have caused certain entities to reduce their usual production volume, with some completely stopping production during the second quarter. These entities may need to revisit the cost of their inventories. This is particularly true for those manufacturers that allocate fixed production overheads based on normal production capacity. If the production volume of these entities are lower than what was determined to be “normal capacity,” the fixed production overhead should not be allocated to the units produced as this will unduly inflate their costs. Rather, any unallocated fixed production overhead will need to be expensed as incurred.

Determining the NRV (or the selling price less cost to sell and/or cost to complete) is another matter as this entails estimation on the part of management. The pandemic may have resulted in reduced demand for the entities’ goods, which in turn will cause the entities to decrease their prices. In such a case, entities will have to determine whether they need to write down the cost of their inventories to NRV. In other cases, entities with goods that are perishable may even find themselves disposing of their products that they are unable to sell, thus resulting in the write off of these inventories.

In all of the above, entities will need to also consider making additional disclosures to further describe the impact of the pandemic in their inventory costing and valuation.

ONEROUS CONTRACTS
Onerous contracts are defined under PAS 37, Provisions, Contingent Liabilities and Contingent Assets, as contracts where the “unavoidable costs of meeting the obligations… exceed the economic benefits expected to be received.” If a contract is found to be onerous, PFRSs require the entity to recognize a provision for such a contract and even possibly recognize an impairment on the related asset or assets.

With the disruption in supply chains brought about by the pandemic, entities will need to consider whether their contracts are onerous and if there is any need to quantify and recognize any compensation or penalties from these contracts. For example, a manufacturing entity has to shut down its facilities as required under ECQ. The entity, however, has contracts to sell goods at a fixed price, which may force the entity to procure the goods from another party at a significantly higher cost. The entity will need to review its contracts to determine if there are any compensation or penalties if the entity is unable to fulfill its obligations. The entity will also need to check if there are any special terms that may relieve the entity from its obligations (e.g., force majeure). If the entity can cancel the contract without paying any compensation or penalty to the other entity, the contract is not onerous. Thus, the entity will not need to recognize any provision or impairment losses under the contract.

EVENTS AFTER REPORTING DATE
Events after the reporting period (or balance sheet date) are favorable or unfavorable events that “occur between the end of the reporting period and the date when the financial statements are authorized for issue.” Such events may be adjusting events (i.e., they have an impact on the financial statements) or non-adjusting events (i.e., they have no impact on the financial statements but may have an impact in terms of the disclosures). Events after the reporting date are adjusting events if they “provide evidence of conditions that existed at the end of the reporting period.”

Management needs to exercise critical judgment in order to assess if the events surrounding COVID-19 are adjusting or non-adjusting events. If the events are adjusting events, the entity will need to make the necessary changes (e.g., recognize provisions for court cases existing at the end of the reporting period but were subsequently settled, recognize impairment loss on receivables for customers that declared bankruptcy after the balance sheet date, etc.) in the amounts recognized in the financial statements. If the events are non-adjusting events, the entities will then need to assess if the impact is material. If such is the case, they must make the necessary disclosures in their financial statements.

DISCLOSURES (FOR INTERIM REPORTING PURPOSES)
The abovementioned implications carry with them the corresponding disclosures required by the relevant standards. However, entities that are required to prepare interim financial statements will also need to consider the required disclosures under PAS 34, Interim Financial Reporting. Under this standard, an entity should disclose events or transactions that have significant impact on its balances since the end of the last annual reporting period. Some examples of these events and transactions are those that impact the valuation of financial assets, such as equity or debt instruments, any loan default or breach of a loan agreement.

Since the disclosures under PAS 34 are basically updates of the disclosures or information presented in the most recent annual reporting period (i.e., Dec. 31, 2019), entities should also consider the extent of information they presented in the annual financial statements. However, since the local impact of the pandemic was felt only in the latter part of the first quarter of 2020, it is possible that this information may not have been included in the 2019 annual financial statements. Entities will then need to include more comprehensive disclosures in their interim financial statements.

ACCOUNTING CHALLENGES FROM COVID-19
This article briefly touches on some of the challenges COVID–19 poses in preparing financial statements. These challenges may differ from entity to entity and as developments surrounding the outbreak continue to evolve, but there can be no denial that all entities will feel the pandemic’s repercussions on people’s lives and the economy. Entities will thus need to be constantly alert to the implications of the outbreak on their financial statements.

This two-part article is the first of a series covering the accounting impact of the coronavirus outbreak. Other articles that will follow will provide more in-depth discussion on certain areas such as impairment and revenue recognition.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.

 

Ma. Emilita L. Villanueva is a Partner from the Assurance Service Line of SGV & Co.

US approves pooled testing for COVID-19

THE US Food and Drug Administration (FDA) has authorized so-called “pool testing” for COVID-19, a move aimed at broadening checks for the coronavirus and using fewer testing resources.

Quest Diagnostics, Inc. will be able to test samples containing as many as four individual swab specimens, the agency said on Saturday in an emergency-use authorization.

The samples collected are then tested in a pool or “batch” using one COVID-19 test, rather than running each individual sample through its own test. If the pool is positive it means that one or more of the individuals tested may be infected, so each of the samples in that pool is then tested again, individually.

The authorization “is an important step forward in getting more COVID-19 tests to more Americans more quickly while preserving testing supplies,” FDA Commissioner Stephen Hahn said in a statement.

“Sample pooling becomes especially important as infection rates decline and we begin testing larger portions of the population,” Mr. Hahn said.

Chinese officials used pool testing to quickly test vast numbers of people in Beijing and Wuhan earlier this year.

White House coronavirus task force members Anthony Fauci and Deborah Birx have both spoken in favor of pool testing as a way to ramp up the number of tests that can be performed.

“Pooling would give us the capacity to go from a half a million tests a day to potentially 5 million individuals tested per day,” Ms. Birx told an American Society for Microbiology virtual conference in June, according to the health news site Stat.

Quest’s test was originally authorized in March for use with individual samples and remains authorized for that purpose, the FDA said. — Bloomberg

Brazil’s Bolsonaro says coronavirus restrictions ‘suffocating’ the economy

SAO PAULO — Brazilian President Jair Bolsonaro said on Saturday that lockdown measures used to curb the spread of the novel coronavirus “kill” and have “suffocated” the country’s economy.

“Without salaries and jobs, people die,” he said referring to restrictions imposed by some states and municipalities. “Lockdown kills,” he added, saying that some politicians have suffocated the economy with forced curfews.

The president’s statement comes as Brazil’s economy is expected to contract 6.4% this year, hit by the pandemic.

Bolsonaro, who announced he tested positive for COVID-19 on July 7, met his supporters in the grounds of his official residence, the Alvorada Palace, in Brasilia.

The president was wearing a mask and kept some meters (yards) of distance from his supporters.

Mr. Bolsonaro said he is feeling well, despite the virus, and again credited his health to the use of hydroxychloroquine to fight COVID-19, despite no scientific evidence. “I am a living proof (that the drug works),” he told supporters.

Besides hydroxychloroquine, the far-right president said he is also taking an anti-parasite drug to fight coronavirus.

Brazil registered 28,532 new confirmed cases of the novel coronavirus and 921 new deaths on Saturday, the health ministry said. Total cases in Brazil, the world’s second-most affected country after the United States, have now risen to 2,074,860 while deaths totaled 78,772. — Reuters

Record daily increase in global virus cases for 2nd day in a row

THE World Health Organization (WHO) reported a record increase in global coronavirus cases for the second day in a row, with the total rising by 259,848 in 24 hours.

The biggest increases reported on Saturday were from the United States, Brazil, India and South Africa, according to a daily report. The previous WHO record for new cases was 237,743 on Friday. Deaths rose by 7,360, the biggest one-day increase since May 10. Deaths have been averaging 4,800 a day in July, up slightly from an average of 4,600 a day in June.

Total global coronavirus cases surpassed 14 million on Friday, according to a Reuters tally, marking another milestone in the spread of the disease that has killed nearly 600,000 people in seven months. The surge means that 1 million cases were reported in under 100 hours.

The WHO reported 71,484 new cases in the United States, 45,403 in Brazil, 34,884 in India and 13,373 in South Africa.

India on Friday became the third country in the world to record more than 1 million cases of the new coronavirus, behind only the United States and Brazil. Epidemiologists say India is still likely months from hitting its peak.

Cases in Brazil crossed the 2 million mark on Thursday, doubling in less than a month and adding nearly 40,000 new cases a day. A patchwork of state and city responses has held up poorly in Brazil in the absence of a tightly coordinated policy from the federal government.

The United States, which leads the world with over 3.7 million cases, has also tried to curb the outbreak at the state and local levels with only limited success. — Reuters

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